JENNIFER NJAMBI KARIITHI, DR. ALLAN KIHARA

FACTORS AFFECTING PERFORMANCE OF MANUFACTURING FIRMS IN KENYA: A CASE OF HARMACEUTICAL

FIRMS IN NAIROBI COUNTY

JENNIFER NJAMBI KARIITHI, DR. ALLAN KIHARA

- 817 - | The Strategic Journal of Business & Change Management. ISSN 2312-9492(Online) 2414-8970(Print).www.strategicjournals.com

Vol. 4, Iss. 2 (46), pp 817 - 836, May 25, 2017, www.strategicjournals.com, ©strategic Journals

FACTORS AFFECTING PERFORMANCE OF MANUFACTURING FIRMS IN KENYA: A CASE OF HARMACEUTICAL

FIRMS IN NAIROBI COUNTY

Jennifer Njambi Kariithi1, Dr. Allan Kihara2

1Jomo Kenyatta University of Agriculture (JKUAT), Kenya 2Jomo Kenyatta University of Agriculture (JKUAT), Kenya

Accepted: May 24, 2017

ABSTRACT

The global manufacturing scene has experienced rapid changes over the last one or two decades. This is a key

variable in the growth of the Kenyan economy. Much of the developing countries in world are experiencing

rapid economic growth. The manufacturing sector aims to generate revenue and growth in Kenya. The

Kenya Economic Survey of 2015 estimated that the contribution to the GDP by the manufacturing sector

stands at 11% which explains the favorable environment policies and campaigns in place to encourage the

growth of the sector. There are top major classes of the resources that influence performance of

manufacturing firms which are financial resources and human resources. Various types of technology can be

used to achieve manufacturing organization goal or objective. A manufacturing firm would be able to create

value through a strategic alliance that the firm could not create on its own. The purpose of this study was to

evaluate challenges facing performance of manufacturing firms in Kenya. The objectives of the study were to

establish how resource constraints and ICT on the performance of manufacturing in Kenya. The study

adopted a descriptive design to explain the interaction between the determinant variables and performance

of manufacturing firms in Kenya. The study targeted employees of registered pharmaceutical manufacturers

in Nairobi County. Primary data was collected using structured questionnaires which were drooped and

picked later and covered all the objectives of the study with a sample size of 252. The data was then analysed

by use of SPSS V 21. In regard to information communication technology the study concluded that it

positively and significantly affected performance of Pharmaceutical manufacturing industry in Kenya. The

study deduced that the manufacturing firm that engaged in online Services would boost its competitive edge

and that adequate infrastructure innovation of a manufacturing firm increased its market share. Therefore

the study recommended that Pharmaceutical manufacturing industry in Kenya should integrate information

communication technology. This would assist in advertisement where the firm was able to make the public

aware of the existence of their products and also enhance online promotions for their goods hence improving

the performance of the firm.

Key Words: Resource Constraints, Information Communication Technology, Performance


INTRODUCTION

The manufacturing scene has experienced rapid

changes over the last two decades and this has

driven manufacturing firms to respond to

uncertainty more rapidly. Thus, emerging of world

class competitors in domestic and international

business require manufacturing firm to revamp

their processes to fulfill market needs. Therefore,

fundamental goal of manufacturing firm’s

corporate and functional level strategies is the

development of sustainable competitive

advantage (Hitt, Hoskisson & Ireland, 2007). Thus,

shifting exploration from conventional way of

thinking to strategic thinking as one of the core

elements enable organization to equip well in

order to wave through competition (Giunipero,

Handfield & Eltantawy, 2006).

The manufacturing industry today is in a state of

metamorphosis with contemporary issues such as

customer satisfaction, competitive advantage,

revenue and expenditures, organizational culture,

technological advancement, global markets,

diverse customer demands and need for effective

workforce with a global mindset penetrating

every aspect of the organization. For a long time,

manufacturing firms in the world have been

taking advantage of, and spending money and

trusting external providers of competitive services

in order to offer cost effectiveness and efficiency

of internal resource procedures. This is

particularly important for organizations, which are

considered as important players in the

manufacturing sector in any country because of

the economic benefits they provide in their

economic environment (Nzioka, 2013).

There has been a realization that manufacturing is

the lifeblood of an economy because of the

critical role it plays in a country’s long-term

prosperity (Owuoth, 2010). The financial crisis

delivered a body blow to the manufacturing

sector from which it is still recovering. A closely

watched survey of manufacturing managers,

shows that activity in the sector slowed over the

summer of 2010 after returning to growth in late

2009.Worries over the scale of national deficits,

and the spending cuts needed to bring

government finances back into balance hang over

the sector (Owuoth, 2010).

Africa’s manufacturing sector has been

transformed over time, reflecting changes in

national policies, varying domestic demand and

the world market dynamics. Importance of the

manufacturing sector to the national economies

of the Africa countries has varied across different

periods since independence, however, in the

recent years its contribution to the national

income and hence its importance has been on the

rise. Industrial structure, policy, output

composition and magnitude have experienced

notable changes over time in Africa region.

Although manufacturing is usually a small sector

in African economies, in terms of share of total

output or employment, growth of this sector has

long been considered crucial for economic

development.

The manufacturing sector in Kenya grew at 3.5%

in 2015 and 3.2% in 2014, contributing 10.3% to

gross domestic product (GDP) (KNBS, 2016). On

average, however, manufacturing has been

growing at a slower rate than the economy, which

expanded by 5.6% in 2015. This implies that the

share of manufacturing in GDP has been reducing

over time. As a result, it can be argued that Kenya

is going through premature deindustrialization in

a context where manufacturing and industry are

still relatively under-developed. Kenya seems to

have ‘peaked’ at a point much lower than in much

of Asia (Phillips, 2009).

The pharmaceutical industry in Kenya consists of

local manufacturers, franchise importers who are

involved in distribution, multinational companies,

wholesalers and retailers and all these play a

major role in supporting the country’s health

sector which is estimated to have about 4758

health facilities country wide (Pharmaceutical

society of Kenya, 2016). It is also approximated

that about 9,000 pharmaceutical products have


been registered for sale in Kenya. These are

categorized according to particular levels of

outlets as: free, over the counter sales, pharmacy

technologist, dispensable or pharmacist

dispensable.

Statement of the Problem

Many Manufacturing firms have relocated or

restructured their operations opting to serve the

local market through importing from low-cost

manufacturing areas such as Egypt, South Africa

and India therefore resulting in job losses

(Nyabiage &Kapchanga, 2014). This is an

indication that many manufacturing firms in

Kenya are experiencing performance challenges

with many reporting profit warnings due to

challenges in the operating environment (RoK,

2015). Statistics from World Bank show that

manufacturers operate in Kenya registered

stagnation and declining profits for the last five

years due to a turbulent operating environment

(WB, 2015). Manufacturing sector in Kenya

contributed barely 13.6 per cent to the GDP in the

year 2016 indicating a decline from the previous

year 2015 where it had reported a 5.6 per cent

growth (KNBS, 2016).

There are 307 local pharmaceutical manufacturing

industries actively manufacturing generic drugs

for local and export market. Despite this, the

country still relies heavily on imported drugs to

service the public health needs. In 2015, the

country imported $809 million worth of drugs. In

the same year, donor communities spent an

additional $693 million to purchase drugs for

pandemic diseases including malaria, tuberculosis

and HIV (WHO, 2016). The local pharmaceutical

industries only managed to access 30%

government and private sector spending in the

pharmaceutical market and almost none from the

donor communities.

Kenya Vision 2030 emphasizes the need for

appropriate manufacturing strategy for efficient

and sustainable practices as a way of making the

country globally competitive and a prosperous

nation (RoK, 2015). The pharmaceutical industry

in Kenya has been characterized by many changes

and an increasingly turbulent environment. The

configuration of competitive forces such as

intensity of competition, new entrants, substitute

products and supplier and buyer power have

transformed the environment a great deal,

creating the need for firms to change their

competitive positions (Mungai, 2009). Muthiani

and Wanjau (2012) postulate that the increased

number of fake drugs in pharmaceutical industry

in Kenya, is due to poor legislation and brand

popularity. Nevertheless, most manufacturing

firms in Kenya operate at a technical efficiency of

about 59 percent that average about 74 percent

(Achuora, Guyo, Arasa & Odhiambo, 2015) raising

doubts about the sector‘s capacity to meet the

goals of Vision 2030 (RoK, 2015).From the ongoing

discussion, the need to understand the factors

affecting performance of the manufacturing

industry could not be overstated. This study

therefore sought to find out the challenges

affecting the performance of the manufacturing

industry in Kenya.

Study Objectives

The general objective of this study was to

evaluate challenges facing performance of

manufacturing firms in Kenya. The specific

Objectives were:-

To determine the influence of resource

constraint on the performance of

Pharmaceutical manufacturing industry in

Kenya.

To examine the influence of ICT on the

performance of Pharmaceutical

manufacturing industry in Kenya.

LITERATURE REVIEW

Theoretical Review

Resource-Based View

How a manufacturing firm controls its key

resources will determine its performance

(Kraaijenbrink, Spender & Groen, 2010). The focus

of the RBV is on attributes of resources and

capability from the source they are gained to

clarify a firm’s heterogeneity, performance and


sustainability. Further, resources are substances

of approach in that gaining dominance in an

aggressive marketplace is dependent on firm

capability to recognize, build up, position and safe

guard meticulously resources that differentiate it

from its competitors (Kraaijenbrink, Spender &

Groen, 2010).

Katz and Green (2009) noted that every firm owns

a diverse outline of tangible and intangible

resources. Barney is one of the late contributors

of RBV who studied and established the existence

of key firm resources for superior performance.

The theory of RBV assumes that individuals are

inspired to make maximum use of economic

resources available and rational choices that a

firm makes which are shaped by economic

framework (Barney, 2007). Resource Based View

theory in this study played a role of evaluating

and explaining resources and capability of a firm

that have the capability to create and maintain a

firm’s advantage and thus higher performance

among the mobile phone industries in Kenya

(Sheehan & Toss, 2007). Complex packages of

skills, obtained knowledge, ability and experience

that facilitate the company to manage activities of

the firm and make use of resources to create

performance through coordinating and putting

resources into proper production use is what

define capability (Mckelvie & Davidsson, 2009).

According to Lockett, Thompsons and

Morgensrern (2009) on strategic management,

RBV scrutinizes the resources and abilities that

facilitate how the firm will produce above the

ordinary rates of return and higher performance

benefits.

Resource Based View allows executives of the

organization to choose the most important

strategic factors to invest in from a given range of

probable strategic factors in the mobile telephone

industry. Barney and Hesterly (2010) advanced

that resources in general include the following key

constructs: resources, capabilities and

competences. In strategic management literature,

resources are defined as stocks of accessible

things that are possessed by the firm.

Competencies are the firm’s strengths that enable

it to better differentiate its products or service

quality by building technological system to

respond to customers’ needs, hence allowing the

firm to compete more efficiently and successfully

than other firms (Arend & Levesque, 2010).

For a manufacturing firm to have superior

performance, resources and capabilities have to

qualify as exceedingly valuable, rare, inimitable,

and non-substitutable. Resources that are

valuable add to advancing the firm’s performance.

Rareness creates ideal competition in view of the

fact that resources in that category are possessed

by fewer firms. Inimitable resources are costly to

duplicate and non-substitutable, meaning that

there is no alternative to accomplishing an equal

function instantly available to competitors

(Barney &Hesterly, 2010). Tangible resources are

physical substances that an organization

possesses such as facilities, raw materials and

equipment. Intangible resources include

corporate brand name, organizational values,

networks and processes that are not included in

normal managerial-accounting information.

Intangible resources are more likely to generate

competitive advantage and superior performance

as compared to tangible resources (Kenneth at el.,

2011).

Technology Acceptance Model (TAM)

The technology acceptance model (TAM) is an

information systems theory that models how

users come to accept and use a technology. The

theory has an implication that for a manufacturing

firm to have a better performance than its

opponents, then it must adopt and make use of

complicated ICT which cannot be duplicated by

competitors for product development, use

swiftness of combination of original technologies,

and proactively expand new technologies in

creating novel, valuable and distinctive product

ideas. In addition, the firm’s technical skills,

research and development resources and

https://en.wikipedia.org/wiki/Information_systems


technological stand appear to be critical in passing

originality and better deliberated products into

the market, hence the firm’s superior

performance (Hakala, 2011). Technology-oriented

manufacturing firms emerge to have the

capability and will to obtain advanced

technological setting, and such firms hold the idea

that innovation is a strategy for superior

performance.

The theory has further implication that for

technology oriented firms to achieve superior

performance, then they should apply technical

ability to produce new products in the market to

cope with competition, flexible products so as to

change with changing needs of customers and be

able to maintain them, and originality in

developing original products, services and

processes which are unique and difficult to

imitate. Anal, Dionysis and Carmen (2011) found

out that customers choose technologically

superior products and services and that

customers stick to a firm that has the capability to

react to their choices in a successful way.

Technological competence is viewed as the

principal means of a manufacturing firm to create

product differentiation which will end up being

unique to a specific firm and promote product

designs that are not beyond those of competitors.

Manufacturing firms which use technological -

oriented strategy are in support of a strong

research and development department,

acquisition of new technologies and application of

the most recent technologies which enhance

superior turnovers and be difficult to be copied by

competitors (Slater et al., 2012). The theory has

an implication that for a firm that invest in

technology to maintain its superior performance,

it should focus on engaging in the search for new

market opportunities and rebuilding of existing

areas of operations to keep on producing unique

products.

Conceptual framework

Independent variables Dependent variables

Figure 1: Conceptual framework

Resource constraints

According to Ayoade (2015), managing

manufacturing operations is akin to playing

symphony with people, systems and processes. As

long as these elements are balanced and in

harmony the operations go on smoothly and

efficiently. Resources are very important assets of

manufacturing operations (Bouquin,

2014).Resources can be the strongest and the

weakest link to manufacturing performance. Even

in a highly automated and system controlled

design, manufacturing operations are heavily

dependent upon personnel and infrastructure to

help run and manage operations (Harmon,

2013).According to Budugan and Georgescu

(2009), there are top major classes of the

resources that influence performance of

manufacturing firms which are financial resources

and human resources.

Financial resources are the money that is used to

boost the operation of manufacturing firms.

According to Ango (2008), financial shortage is a

major limitation to any manufacturing firm. Some

organizations that venture into manufacturing

business do not have sufficient capital or funds to

boost their business. In some cases even where

credit is available the owner or manager may lack

freedom of choice because the lending conditions

Resource Constraints

Human Resources Financial Resources Physical Resources Capital resources

Information

Communication

Technology

Innovation Process

automation Online services Internet and

intranet

Performance of

manufacturing firms

Profitability Market Share Sales volume


may force the purchase of heavy, immovable

equipment that can serve as collateral for the

loan. Credits constrains operates in variety of

ways in Kenya where undeveloped capital market

forces entrepreneurs in the manufacturing sector

to rely on self-financing. This has caused them to

rely on high cost short term finance (Wanjohi &

Mugure, 2008).

Human resource is the availability of skills, talent

and know-how of employees that is required to

perform the everyday tasks that are required by

the manufacturing firm’s strategy. It is the value

that the employees of manufacturing business

provide through the application of skills, know-

how and expertise(Drury, 2015). Human resource

is inherent in people and cannot be owned by the

manufacturing organization. Therefore, it can

leave an organization when people leave it also

encompasses how effectively an organization uses

its people resources as measured by creativity

and innovation (Emmanuel, 2014).Without

competent people both in managerial and

employee positions, manufacturing organizations

will not be able to accomplish their goals. This

means that the manufacturing firm will not be on

a competitive edge with other firms in other

industries (Mugo, 2010).

Bouquin (2014) suggests that the manufacturing

organization's employees can determine the

ultimate success of their organizations given the

importance of people in the manufacturing

organizations; most strategic human resource

departments consider the management of the

competencies and capabilities of these human

assets the primary goal. Emmanuel (2014) argues

that effective human resource management will

generate a higher capacity to attract and hold

employees who are qualified and motivated for

good performance, and also the benefits from

having adequate and qualified employees are

numerous. According to Khan (2010),

manufacturing departments tend to employ

progressive human resource practices in which

the emphasis is on assessing the knowledge, skills

and abilities needed for the future and to institute

staffing, appraisal and evaluation, incentive and

compensation, and training and development

programmes to meet those needs.

Buracket al. (2014) suggests several ways that

manufacturing organizations can maintain high

commitment and high performance among

employees and ultimately organizational

effectiveness thus attaining competitive

advantage. Employees are arguably the most

valuable resource manufacturing company

possesses and it is widely accepted that employee

exposure and experience are positively linked to

firms’ performance aimed at improving its

competitive advantage (Hasanali, 2012).

Entrepreneurship in developing countries is

arguably the least studied significant economic

and social phenomenon in the world today

(Reynolds et al., 2004). However, enterprise

development is almost universally promoted in

developing countries, and is often justified on the

grounds that the emergence of entrepreneurs is

an important mechanism to generate economic

growth (Fairoz, Hirobumi & Tanaka,

2010).Contemporary entrepreneurship stresses

the importance of a new entry for business

innovation referring to the process of creative

destruction (Schumpeter, 2009). Miller and

Hatcher (2014) clarify the construct of

entrepreneurial orientation and define an

entrepreneurial firm as one that “engages in

product marketing innovation, undertakes

somewhat risky ventures, and is first to come up

with proactive innovations, beating competitors

to the punch.” According to Miller firms are

entrepreneurial if they are innovative, risk taking,

and proactive.

Today’s dynamic, global, and challenging business

environment requires a firm to be entrepreneurial

if it is to survive and grow. Runyan et al. (2008)

examined entrepreneurial orientation (EO) versus


Small Business Orientation (SBO), and their

impact on small business performance, as well as

whether these effects are moderated by longevity

of manufacturing firms in USA. Firms are grouped

based on the age as younger and older firms.

Findings revealed that EO and SBO are unique

constructs and performance is not the same in

these groups: for the younger group, only EO

significantly predicts performance while for the

older group, only SBO significantly predicts

performance.

Information Communication Technology

According to Kuratko and Hodgell (2011), ICT

choice has important implication for growth and

productivity in manufacturing industry. The use of

information communication technology is always

tied to an objective. Because of various types of

technology can be used to achieve manufacturing

organization goal or objective, the issue of choice

arises. Moustafa, (2010), asserted that effective

choice is based on pre-selected criteria for an

ICT’s meeting specified. Further, it also depends

on the ability to identify and recognize

opportunities in different technologies. The

expected outcome is that the firm will select the

most suitable or “appropriate” technology in its

circumstances. According to Harper (2007), ICT

used by manufacturing industry in developing

countries may be inappropriate because their

choice is based on insufficient information and

ineffective evaluation(Oghojafor, 2008).

According to Rof (2012),companies that do not

embrace technological advancement have faced

stiff competition and sometimes even remain

irrelevant for instance Telekom Kenya was the

leading communication industry in Kenya

technological advancement and the fact that

Safaricom remains at the top of technology has

seen Safaricom remain the market leader in

communication in Kenya. An organization may

strive to achieve a state of perfect alignment in

order to achieve maximum competitive advantage

(Elms & Low, 2013).

Demands for innovation and technological

advancement are increasingly crucial components

of profitability for many manufacturing firms (Sani

& Allah, 2012). Most manufacturing companies

face serious competitive challenges due to the

rapid pace and unpredictability of technology

change and failure to utilize innovation as a

competitive advantage (Esty & Winston, 2009).

Given the array of capabilities needed to sustain

effective corporate entrepreneurship, competitive

advantage provides the manufacturing company

with an attractive source of innovations to create

positive synergy for the firm. Likewise, if the

innovation process or the outcomes of innovation

are difficult to copy, then it becomes an

increasingly important ingredient in sustaining

competitive advantage. Manufacturing products

from function, pricing, and distribution offer

potential avenues for reducing imitability for

innovative advantage (Mali & Malik, 2011).

Parker (2012) recommended that manufacturing

firms can only specialize in developing

technologies that have pivotal importance to their

business in order to protect imitability of key

competitive elements. The common thread is

identifying outcomes that are difficult for other

firms to replicate (Knox, 2012).The performance

outcomes are no better if a manufacturing firm

chooses to resist change as it innovates and

diversifies. The consequences of neglected

structural and cultural implications of increased

diversification and organizational differentiation

particularly where new products often require

new structures to foster market exploitation.

Therefore, competitive activities must be

compatible with a firm's ability to manage

potentially radical organizational change (Zengin

& Ada, 2010).

According to Gaynor (2012), innovative advantage

and subsequent requirements for sustained

exploitation, provides incentives for change in the

strategic configuration. Innovative advantage


might enable manufacturing firm to broaden its

market appeal by introducing cost savings as well

as unique features. Successful adaptability

requires both knowing when to change and

knowing when change is not appropriate (Singh &

Singh, 2009).Innovation advantage that help a

manufacturing firm make correct choices will

have a greater probability of maintaining

competitive advantage. As Rof (2012) points out,

the foundation of competitive advantage

influences a manufacturing firm’s utilization of

capabilities such as human skills and relationships,

material resources, and relevant knowledge that a

firm uses to build products and deliver services

having a market place appeal.

Performance of manufacturing industry

Continuous performance is the objective of any

organization because only through performance,

are organizations able to grow and progress

(Gavrea, Ilies & Stegerean, 2011). The concept of

performance is uncertain, as scholars often agree

that there is no universal definition of the

concept. Scholars often agree that performance is

a function of time and organizational context.

According to Fauzi et al. (2010), performance is

the organization’s ability to attain its goals by

using resources in an efficient and effective

manner. Measuring the performance of an

organization as pointed out by Huber (2004)

ensures that strategic activities are aligned to the

strategic plan further improving the bottom line

by reducing process cost and improving

productivity and mission effectiveness.

Performance measurement as defined by Richard

et al. (2009) is the process of quantifying the

efficiency and effectiveness of past actions or the

process of evaluating how well organizations are

managed and the value they deliver for customers

and other stakeholders.

According to Ango (2008), performance measures

include both financial and non-financial; financial

measures include profitability, market share,

profitability and liquidity. Non-financial measures

include efficiency, customer satisfaction and

quality of decisions. Performance measurement

tools developed to incorporate aspects in

measuring performance include; the balance

score card, economic value add, triple bottom line

approach, cleaner production etc. The balanced

score card proposed by (Kaplan & Norton, 2012) is

a framework that is used to measure

organizational performance. The model identifies

and integrates four different ways of looking at

performance; financial, customer, internal

business processes and innovation and learning

perspectives. A balanced scorecard is generally

used to clarify and update the business strategy,

link the objectives of the organization to the

annual budgets, allow organizational change, and

increase the understanding of the company vision

and mission statements across the organization. A

balanced scorecard can be used to translate a

firm’s mission and vision statements into a broad

set of objectives and performance measures that

can be quantified and appraised, and measures

whether management is achieving desired results

(Laforet& Li, 2015).

The triple bottom line is another frame work used

to measure the performance of an organization. It

integrates three pillars that are used to measure

performance namely people, profit and natural

capital. People relate to the fair and beneficial

business practices toward labor and the

community in which the organization operates,

this is mostly achieved by organizations through

corporate social responsibility

(Budugan&Georgescu, 2009). Profit is the

economic Value created by the organization after

deducting the cost of all profits including the tied

up capital, it is the real economic impact the

organization has on its economic environment

Natural resources refers to sustainable

environmental practices, an organization seeks to

benefit the natural order as much as possible or at

the least do no harm and minimize environmental

impact (Bouquin, 2014). The triple bottom line

approach therefore interprets the accounting

profit of an organization plus social and


environmental impacts. Profit is considered as an

important factor in manufacturing firm’s financial

statement and it has been widely used to

determine the manufacturing firm financial

performance (Dobi, 2007).

Different measurements have been used in order

to measure performance depending on the

accounting policies adopted by the different

manufacturing firms (Amidu, 2007). Kapoor et al

(2010) used Earnings before Interest and Tax

(EBIT) /Total assets to measure profit, which is

interpreted as organizational performance.

Another method used to measure performance

that is adopted by manufacturing firms is the

return on equity (ROE). An Al- Shubiri (2011) state

that ROE is one of the best measurements of a

company’s profit since it reveals the capacity of a

firm to generate cash internally. Benartzi et al.

(2007) on the other hand pointed out that

manufacturing firms current year’s earning affects

the dividend payment pattern of the firms.

Shareholders use dividends payments to establish

the performance of manufacturing firms in Kenya.

Lewis (2014) summarized key performance

indicators in the manufacturing sector into the

following sub-categories; quantitative indicators

which can be presented with a number of outlets,

branches, qualitative indicators which can't be

presented as a number and can be used to

measure intangible performance of an

organization, leading indicators which can be used

to predict the future outcome of a process and

financial indicators used in performance

measurement and when looking at an operating

index. Thompson et al. (2007) notes that, the

success with which a firm's business strategy

effectively addresses its industry's key success

factors will determine its strategic performance;

therefore, performance is an outcome of strategy

especially competitive strategies. Strategic

performance is measured in terms of both

financial and market success. Financial

performance is essential for continued business

operations as well as financial capabilities which

are critical in supporting functional strategies and

making required infrastructure investments.

Kotler et al. (2009), says that market share

demonstrates a firm's ability to create and hold

customers, which determines the long term

success of a firm.

Empirical Review

Various studies have been done such as Collier

and Gunning (2009) in their two survey papers

posed the question as to why success of

manufacturing firms has been such a rarity in

Africa. In their first paper they ask if macro and

micro evidence give broadly similar answers to

the question as to why Africa performed badly. In

their second paper they consider whether it is

policy or destiny, either internal or external,

which the principle determinant of widespread

failure in Africa is. Their answer in their first paper

is that both macro and micro evidence point in

the same direction - Africa suffers from low social

capital, poor infrastructure and risk. Their second

paper argues that it is policy not destiny that is

the key to poor performance. Their analysis points

to poor policy resulting in a nexus of constraints

from which escape is difficult but not impossible.

Trade liberalization and macroeconomic stability

are policies which have frequently been adopted

at the same time as large nominal devaluations. In

these areas of macroeconomic policy there have

been divergent outcomes. Ghana is a good

example of a country which has made substantial

progress on trade liberalization but has had very

much less success with macro stability. South

Africa is a country which since 1994 has moved

rapidly in both areas. In terms of export growth

generally Ghana has been more successful than

South Africa. In terms of manufacturing export

growth South Africa has been the more successful

economy of the two.

Unlike the case in developing countries, there is

growing research analyzing the determinants of

firm-level profit variation in industrialized

countries where one of the major issues has been


the nature of product market competition and the

role of concentration, economies of scale and the

presence of outside competitive forces in the

form of entry-exit barriers on firm profitability

(Porter, 1980; Slater and Olson, 2002). As

reviewed by Goddard et al. (2005), a second issue

that took considerable attention is the

examination of the time-series behavior of firm

profitability using the so-called of persistence of

profitability method. Accordingly, the central

question is to what extent any divergence of a

firm’s profitability rate from the market average is

corrected through the presence of competitive

forces.

In the case of developed countries, empirical

evidence on the strength and duration of

persistence of above the average profitability is

presented by various papers including Godard et

al. (2005) for four EU countries, Goddard et al.

(2006) for the UK, and by and Gschwandtner

(2005) for the USA. The overall findings of this

literature suggest that there are differences

between firms‟ long-run equilibrium profit rates

and changing degrees of yearly persistence,

possibly reflecting the influence of both industry-

level and firm-level factors. The only research in

this field that focused exclusively on developing

country experiences are Glen et al. (2013) for a

subset of emerging markets, Kambahampati and

Mueller (2010) (ed) includes a collection of

articles on persistence of profit analysis for USA,

UK, Canada, Germany, France and Japan. Parikh

(2003) for India, and Yurtoglu (2004) for Turkey. In

particular, Glen et al. (2013) analyze the impact of

competition in the product markets on firm

profitability using the persistence of profitability

methodology in the case of Brazil, India, Jordan,

Korea, Malaysia, Mexico and Zimbabwe. Similarly,

Kambhampati and Parikh (2003) and Yurtoglu

(2004) conduct a similar analysis in the case of

India and Turkey using panels of manufacturing

firm data.

Accordingly, the existing empirical evidence

shows a declining trend in macroeconomic

volatility in developed countries. McConnell and

Perez-Quiros (2000), for instance, found a

declining GDP volatility in the US since mid-1980s.

Similar results are reported for developing

countries although with higher variance. Montiel

and Serven (2004), for example, reported a

decline in the standard deviation of per capita

GDP growth from 4 percent in the 1970s and

1980s to about 3 percent in the 1990s, which

even then remained well above the 1.5 percent in

developed countries. Also, they reported that the

reduction in volatility was not uniform and one

third of 77 countries analyzed did actually see an

increase in growth volatility in the 1990s relative

to the 1980s. Among others, in Turkey the

standard deviation of real GDP growth has

steadily increased from 3.5 to 5.2 and 6.1

between 1980-89, 1990-1999, and 2000-2005

respectively. Also, Kose, Prasad, and Terrones

(2003) found an increase in consumption volatility

in emerging markets during the 1990s.

In contrast, there has been a general increase in

the uncertainty and volatility of key macro prices

as well as capital flows in developing countries in

the post financial liberalization era that had a

direct impact on firm profitability. The

determinants of firm-level profit variation, based

on the nature of product market competition,

economies of scale, and outside competitive

forces in the form of entry-exit barriers, have long

been an active topic of research (Slater and Olson,

2002). In this field, a major issue for both

developed and developing countries has been the

examination of time-series behavior of firm

profitability using the persistence of profitability

method, which suggest that there are differences

between firms‟ long-run equilibrium profit rates

and changing degrees of strength and duration of

yearly above the average profits reflecting the

influence of both industry and firm level factors

(Parikh, 2003; Yurtoglu, 2004; Goddard, Tavakoli&

Wilson, 2005).


More recently, firm level heterogeneity in

explaining profit variation through trade openness

has also been at the center of a growing research

along the lines of new trade theory (Melitz, 2003;

Baldwin, 2005) Likewise, there is considerable

work on the effects of macroeconomic

uncertainty and volatility on firm profitability in

developed countries. Jorion (1990), Amihud

(1993), Bartov and Bodnar (1994), and Bartov,

Bodnar and Kaul (1996) focusing on the US

multinational firms, for example, find a negative

effect of uncertainty and volatility on firm

profitability. On the theoretical front, Shapiro

(1974) and Dumas (1978) show a negative effect

of exchange rate uncertainty and volatility on firm

profitability, while Baum, Caglayan and Barkoulas

(2001) point out an indeterminate effect of

volatility on profit growth rates.

Regarding volatility in global markets, there have

been significant changes with major ramifications

for firm profitability in developing countries. In

particular, for a variety of reasons that are open

to debate (including the role of goods and capital

market openness, institutions, financial

development, etc.), macroeconomic volatility has

been much higher in developing countries than

developed ones. In the case of growth volatility,

while it declined in developed countries during

the 1990s (McConnell & Perez-Quiros, 2000),

Montiel and Serven (2004) report an increase in

one third of 77 developing countries, with an

overall volatility twice higher than the developed

ones. Likewise, terms of trade volatility is found to

be more than three times higher in developing

countries (except in East Asia) during every

decade since 1960 (Loayza et al., 2007).

Furthermore, there is evidence that volatility has

been on the rise during the 1980s and 1990s.

Kose, Prasad and Terrones (2003) show an

increase in consumption volatility in emerging

markets during the 1990s. The volatility of capital

flows to developing countries is also found to be,

high, rising and unpredictable” during the 1990s

compared to 70s and 80s (Gabriele, Boratav&

Parikh, 2000).

RESEARCH METHODOLOGY

The research design used in this study was

descriptive research. Descriptive design is a

method of collecting information by interviewing

or administering a questionnaire to a sample of

individuals. The 307 pharmaceutical firms formed

the target population of the study while 5

pharmaceutical manufacturers were used as a

pilot study. 1147employees were selected from

those registered pharmaceutical manufacturers to

form a target population. The study was

undertaken at registered pharmaceutical

manufacturers in Kenya. The sampling frame was

drawn from various employees in those registered

pharmaceutical manufacturers. The researcher

used questionnaires and secondary data as the

research instrument to gather the relevant

information needed related to the study. Closed-

ended questionnaires were used to generate

statistics in quantitative research. Open-ended

questionnaires were used in qualitative research.

Primary data was collected through the

administration of questionnaires to senior

management manufacturing firm’s employees.

The information gathered from the respondents

was of a qualitative and quantitative nature. Data

was analyzed using Statistical Package for Social

Sciences (SPSS Version 24.0) which is the most

recent version.

DATA ANALYSIS, PRESENTATION AND

INTERPRETATION OF FINDINGS

Out of 252 questionnaires administered, a total of

168 filled questionnaires were returned giving a

response rate of 66.67% which is within what

Parker (2012)prescribed as a significant response

rate for statistical analysis and established at a

minimal value of 50%. Reliability analysis was

subsequently done using Cronbach’s Alpha which

measures the internal consistency by establishing

if certain items within a scale measure the same

construct. The respondents were requested to

indicate the number of years they had workedg in


the firm. From the 41.1% of the respondents

indicated that they had worked in the firm for 6-

10 years. Again 36.9% of the respondents

indicated that they have been working in firm for

11 years and above while 22% of the respondents

indicated that they have been working in the firm

for 5 years and below. This implied that majority

of the respondents had worked in the firm long

enough to comprehend the subject under study.

The respondents were again asked to indicate

their level of education. 42.9% of the respondents

showed that they had a degree, 34.5% of the

respondents indicated that they had a college

diploma, 14.3% of the respondents showed that

they had a certificate while 8.3% of the

respondents indicated that they had masters. This

implied that majority of the respondents were

learnt enough to understand the subject under

study.

Resource Constraint

The respondents were asked to indicate the major

resources which are used in their firm. Their

responses were as presented in the table 1.

Table 1: Major Resources Used in the Firm

Frequency Percent

Labour 96 57.1

Capital 72 42.9

Total 168 100

From the above results, 57.1% of the respondents

indicated that labour was the most used resource

while 42.9% of the respondents indicated that

capital was used in the firm. This concurred with

Bouquin, (2014) who suggested that the

manufacturing organization's employees can

determine the ultimate success of their

organizations given the importance of people in

the manufacturing organizations; most strategic

human resource departments consider the

management of the competencies and capabilities

of these human assets the primary goal.

The respondents were requested using a likert

scale of 1-5 to tell the extent to which the

resource constraints influenced performance of

Pharmaceutical manufacturing industry in Kenya.

Their responses were as shown in table 2.

Table 2: Extent to which Resource Constraints Influence Performance

Frequency Percent

No extent at all 5 3

Little extent 12 7.1

Moderate extent 69 41.1

Great extent 72 42.9

Very great extent 10 6

Total 168 100

As per the above results the respondents

indicated that resource constraints influences

performance of Pharmaceutical manufacturing

industry in Kenya in great extent as shown by

42.9%, in a moderate extent as shown by 41.1%

and in a little extent as shown by 7.1%. Further

the respondents indicated that resource

constraints influenced performance of

Pharmaceutical manufacturing industry in Kenya

in very great extent as illustrated by 6% while 3%

indicates that resource constraints influences


industry in Kenya at no extent at all. This was in

line with Hasanali (2012) who argue that

employees are arguably the most valuable

resource manufacturing company possesses and it

is widely accepted that employee exposure and

experience are positively linked to firms’

performance aimed at improving its competitive

advantage. The respondents were also requested

using a likert scale of 1-5 to tell the level of

agreement with various statements related to


resource constraints influenced on performance

of Pharmaceutical manufacturing industry in

Kenya. Their responses were as shown in table 3.

Table 3: Agreement with Various Statements Related to Effects of Resource Constraints

Statements Mean Std dev.

Strong personnel enhances quality of services of the manufacturing firm 4.048 0.733

Adequate Financial resources can help the manufacturing firm to acquire large

market share

4.071 0.747

Machinery resources promotes efficient production in manufacturing firm 3.435 0.554

Technological resources enhances efficiency of manufacturing firms 2.982 0.770

The above findings showed that the respondents

agreed on the fact that strong personnel

enhanced quality of services of the manufacturing

firm as illustrated by a mean of 4.048. This concur

with Burack et al. (2014) who suggested several

ways that manufacturing organizations could

maintain high commitment and high performance

among employees and ultimately organizational

effectiveness thus attaining competitive

advantage.

Further the respondents agreed on the fact that

adequate financial resources could help the

manufacturing firm to acquire large market share

as shown by a mean of 4.071. However the

respondents were neutral that Machinery

resources promotes efficient production in

manufacturing firm as depicted by a mean of

3.435 and that technological resources enhanced

efficiency of manufacturing firms as illustrated by

a mean score of 2.982. These findings were in line

with Bouquin, (2014) who suggested that the

manufacturing organization's employees can

determine the ultimate success of their

organizations given the importance of people in

the manufacturing organizations; most strategic

human resource departments consider the

management of the competencies and capabilities

of these human assets the primary goal.

Information Communication Technology

Further the study sought to examine the influence

of ICT on the performance of Pharmaceutical

manufacturing industry in Kenya. The study used

the responses of the respondents to come up with

the findings.

The respondents were asked using a likert scale of

1-5, to tell the extent to which ICT influences


industry in Kenya. Their responses were as shown

in table 4.

Table 4: Extent to which ICT Affect Manufacturing Firms in Kenya

Frequency Percent

No extent at all 13 7.7

Little extent 14 8.3

Moderate extent 57 33.9

Great extent 76 45.2

Very great extent 8 4.8

Total 168 100

The findings above indicates that ICT influences


industry in Kenya in a great extent as shown by

45.20%, that ICT influenced performance of



in a moderate extent as illustrated by 33.9%, that

that ICT influenced performance of


in a little extent as shown by 8.3%that that ICT

influenced performance of Pharmaceutical

manufacturing industry in Kenya in a very great

extent as illustrated by 4.8% while 7.7% indicated

that ICT influenced performance of


in no extent at all. This concurred with Parker

(2012) who recommended that manufacturing

firms can only specialize in developing

technologies that have pivotal importance to their

business in order to protect imitability of key

competitive elements.

Using a likert scale of 1-5, the respondents were

asked to tell the extent to which strategic alliance

influences performance of Pharmaceutical

manufacturing industry in Kenya. Their responses

were as shown in table 5.

Table 5: Agreement with various statements related to effects of ICT

Statements Mean Std dev.

The manufacturing firm that engage in online Services will boost its competitive

edge

4.077 0.599

Adequate infrastructure innovation of a manufacturing firm increases its market

share

3.941 0.635

Process automation of a manufacturing firm enhances it efficient and effective

production

2.000 0.812

Internet and internet of a manufacturing firm enhances it efficient and effective

information sharing

3.357 0.572

As per the results above, the respondents agreed

that the manufacturing firm that engage in online

Services will boost its competitive edge as

illustrated by a mean score of 4.077. This is in line

with Rof, (2012) who claims that companies that

do not embrace technological advancement have

faced stiff competition and sometimes even

remain irrelevant for instance Telekom Kenya was

the leading communication industry in Kenya

technological advancement and the fact that

Safaricom remains at the top of technology has

seen Safaricom remain the market leader in

communication in Kenya.

Again the respondents agreed on the fact that

adequate infrastructure innovation of a

manufacturing firm increased its market share as

depicted by a mean score of 3.941. This concur

with Parker (2012) who recommended that

manufacturing firms could only specialize in

developing technologies that had pivotal

importance to their business in order to protect

imitability of key competitive elements.

However the respondents were neutral that

internet of a manufacturing firm enhanced it

efficient and effective information sharing as

shown by a mean 3.357 and disagreed on the fact

that process automation of a manufacturing firm

enhanced it efficient and effective production as

illustrated by a an average of 2.000. These

findings were in line with Gaynor (2012) who

argued that innovative advantage and subsequent

requirements for sustained exploitation, provides

incentives for change in the strategic

configuration.

Firm Performance

Under this the study sought to determine the

trend of the profits, sales volume as well as

market share for the firms. The findings were

presented below.

The respondents were requested to indicate the

trend of various performance indicators. Their

responses were as shown below.


Figure 2: Profits

The figure 2 showed that profits per year dropped

between 2011 and 2012. Between 2012 and 2013

the contributions per year increased although

there was a drop in the contributions per year

between 2014 and 2015.

Figure 3: Sales Volumes

From the above results the respondents indicated

that sales volumes have increased between the

years 2011 and 2013 but dropped as from 2013 to

2015.

Figure 4: Market Share

Further the respondents indicated that market

share has been increasing from 2011 to 2013 but

there was a decrease between 2014 and 2015.

SUMMARY, CONCLUSIONS AND

RECOMMENDATIONS

The study found that resource constraints

affected performance of Pharmaceutical

manufacturing industry in Kenya greatly. The

study agreed on the facts that strong personnel

enhanced quality of services of the manufacturing

firm. Further the study agreed on the fact that

adequate financial resources could help the

manufacturing firm to acquire large market

However the study was neutral that Machinery

resources promotes efficient production in

manufacturing firm and that technological

resources enhances efficiency of manufacturing

firms

1,400,000

1,500,000

1,600,000

1,700,000

1,800,000

2011 2012 2013 2014 2015

profits

0

500,000

1,000,000

1,500,000

2011 2012 2013 2014 2015

sales volumes

0

5,000,000

10,000,000

15,000,000

2011 2012 2013 2014 2015

market share


In regard to information communication

technology the study found that it greatly affected


industry in Kenya. The study agreed on the fact

that the manufacturing firm that engaged in

online Services would boost its competitive edge.

Again the study agreed on the fact that adequate

infrastructure innovation of a manufacturing firm

increased its market share. However the study

was neutral that internet of a manufacturing firm

enhanced it efficient and effective information

sharing and disagreed on the fact that process

automation of a manufacturing firm enhances it

efficient and effective production.

Recommendations

Concerning resource constraints, the study found

that strong personnel enhance quality of services

of the manufacturing firms. The study therefore

recommends that the firms should be encouraged

to recruit the qualified workers both academically

and professionally since experienced will enhance

the performance of the firm. This will ensure that

the products produced are of high quality hence

maintaining their customer as well as ensuring

customer satisfaction.

In regard to information communication

technology, the study again found that the

manufacturing firm that engage in online Services

boost its competitive edge. Therefore the study

recommends that Pharmaceutical manufacturing

industry in Kenya should integrate information

communication technology. This will assist in

advertisement where the firm is able to make the

public aware of the existence of their products

and also enhance online promotions for their

goods hence improving the performance of the

firm.

Recommendation for Further Studies

The study further recommends that the same

study should be done in other counties in Kenya

where there are Pharmaceutical manufacturing

industries and investigate the factors affecting


industry in those respective counties. The

researcher should go ahead and establish how the

factors tackled in this study as well as other

factors not mentioned affects performance of

Pharmaceutical manufacturing industry.

The study also recommends further studies to be

done to investigate factors in relation to customer

satisfaction and establish their effect on the


industry in Kenya.

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